How to properly rig a watch to an arm
Edit: Are you sure it's a rigid-body-simulation problem?

I guess what you want is to deform the bracelet but not the watch. To do so you could use Make Vertex Parent. In my screenshot I just kept the watch and its bracelet but of course the bracelet is supposed to be part of the same mesh as the character and his arm.


Make the watch a different object from the bracelet. Now select the watch, then the bracelet and go in Edit mode.





Select 3 bracelet vertices, press ctrlP > Make Vertex Parent





Now when you deform the arm (and therefore the bracelet) the watch follow but doesn't deform.